Just as digital technology is forcing advisers to evolve their business, it's also impacting compliance departments across the financial services industry.
At a recent technology event in New York hosted by the Securities Industry and Financial Markets Association, regulatory and compliance experts discussed the growing field of regulation technology, or regtech, and the impact it's having on companies.
Kavita Jain, director of the Financial Industry Regulatory Authority Inc.'s office of financial innovation, defined regtech as innovative technology making compliance more efficient, effective and risk-based.
For example, new machine learning tools are improving firms' surveillance and conduct monitoring capabilities by accounting for external, unstructured data feeds like social media and news articles in addition to internal data.
"[Technology can] pull all of that together and do a scan across all of that to proactively identify risk factors," Ms. Jain said.
Regtech also can help with anti-money laundering oversight, know-your-client rules, regulatory reporting and assessing client risk tolerance. Firms even are using technology to keep up with new and changing regulations, and have rules automatically tie into workflows, Ms. Jain said.
New technology employed in other areas of the business also is influencing how compliance teams hire. The sheer amount of data that needs to be reviewed would require hundreds if not thousands of people, so compliance departments are having to hire data and technology experts, said David Choi, a partner with PwC.
"What we've seen is compliance teams being transformed," Mr. Choi said.
Some compliance divisions are setting up data science teams while others are bringing in specialists who know how to use emerging technology to automate compliance functions.
As firms use more outsourced technology, it's important that firms update and refresh their review processes and supervisory procedures to stay current, Ms. Jain said.
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"Data security is going to be really, really, really important. I can not emphasize that enough," she said. Compliance teams need to update and modernize review processes and supervisory procedures with every new technology the firm adopts to accounts for customer privacy, security and digital biases.
"These are not new areas, but areas that need heightened attention," Ms. Jain said.